News & Views

15/03/19

PHL to UN body: Poverty reduction, financial inclusion plans on track

The Philippines’ medium-term strategy to reduce poverty incidence and achieve financial inclusion for all Filipinos via massive investments in infrastructure and human capital development has made significant strides in the last three years, with spending for these two critical sectors now the highest in the country’s history, the Philippines has said before a recent session of the United Nations Commission for Social Development (UNCSocD).

On behalf of the Philippines, Finance Undersecretary Gil Beltran reported to the UNCSocD recently that in terms of addressing inequality through fiscal and social protection policies, the Duterte administration has, among others, embarked on tax reform to help generate adequate resources for basic social services, and tapped private-sector participation in the microinsurance sector to provide coverage for more than a third of the population, the highest among emerging economies.

“We have been advocating for the proper use of fiscal instruments in addressing issues. On the one hand, we have recently passed the first package of tax reforms aimed at flattening and broadening the tax system. On the other hand, we are using the expenditure arm of fiscal policy such as cash transfers, conditional and unconditional, to lift the living conditions of those at the bottom of the economic pyramid,” Beltran said during the 57thsession of the UNCSocD at the UN Headquarters in New York.

“Addressing Inequalities and Challenges through Fiscal, Wage and Social Protection Policies” was the theme of the 57th session of the UNCSocD.

Beltran said during the high-level panel discussion that the Philippines’ experiences in pursuing its inclusive development goal underscore the need for dialogue and cooperation with affected stakeholders not only during the consultation phase but also in the implementation stages of programs that aim to achieve this objective.

The Philippine panel stressed during the high-level discussion that the country’s “growth continues to be above 6 percent for the last 7 years; social services account for 39 percent of the national government budget in 2017 and 2018, the highest in the country’s history; and microinsurance, tapping private sector funds, protect more than a third of the population, the highest among emerging economies,” Beltran said in his report to Finance Secretary Carlos Dominguez III on the country’s participation in this recent UN event.

Beltran said at the event that the Philippines’ dual socio-economic development mandate, which is “to sustain and protect a high rate of growth while ensuring that no one is left behind,” involves embarking on an ambitious infrastructure program and spending big on education, health and social protection.

He said during the discussion that the Philippines recognizes the important role of the private sector in pursuing inclusive development, especially in empowering micro, small and medium enterprises (MSMEs) by expanding their access to credit facilities.

“This is a radical turnaround for fiscal policy,” Beltran said, pointing out that while the government took on the role of providing direct lending facilities to MSMEs in the 1970s and 1980s, it had limited expertise, however, in risk management.

“So we moved to a different strategy—we tapped the government banks and invited the private sector. The role of government, thus, has evolved from being an active player to that of a referee—policymaker, regulator, capability builder, enforcer of collective bargaining agreements—and a cheerer. It is the private sector that has assumed the role of an active player,” Beltran said.

In the case of microinsurance, Beltran said the Duterte administration’s decision to involve stakeholders in crafting the rules and regulations to ensure transparency and enlisting the help of local government units (LGUs) down to the barangay or village level, especially in far-flung areas to ensure the timely payment of claims, have proven to be effective in sustaining and expanding access to this initiative.

As a result, microinsurance, which covered around two percent of the population in 2008, now covers about one-third or around 34 million Filipinos, Beltran said.

“Microinsurance that already include health and disaster insurance and agricultural microinsurance is also gaining traction,” he added.

Beltran said the Philippines’ experiences have underlined the need to redefine the roles of both the government and the private sector in achieving financial inclusion.

“There are instances where the government may have to step in, such as in the case of cash transfers and the provision of infrastructure and social services, and enforcement of collective bargaining agreements. And there are cases where the private sector can perform a more efficient and sustainable role as in the case of microfinance and microinsurance,” he said.

The government’s goal, he said, is to increase infrastructure spending to 7 percent of the gross domestic product (GDP) by 2022 to not only boost growth and productivity, but to mitigate the effects of calamities as well.

Increasing funding for infrastructure and social services, entails fiscal reforms, both in policy and administration, so that the Philippines can increase its tax effort from 14 to 17 percent, he said. Thus, one third of the marginal increase in tax effort will go to infrastructure, while the other third will be spent on social services such as education and health.

“In a way, our infrastructure drive validates the findings of the World Bank that the Philippines needs both more capital and improved productivity to sustain a high level of growth and reduce poverty incidence which is still at 21.6 percent. Our aim is to reduce poverty incidence to 14 percent by the end of 2022,” Beltran told the UNCSocD.

Among the initiatives that the government is undertaking in the social services sector are the implementation of the K-to-12 educational system; a universal health care or UHC program, which will be funded in large part by higher excise taxes on “sin”products; and further tax reforms to sustain the cash transfer program, both conditional and unconditional, for the benefit of the poorest Filipino families.